The Financial Crisis on Trial: What Went Wrong

Americans demanded retribution from the mortgage lenders whose subprime loans defaulted and from investment bankers whose mortgage-backed securities sharply declined in value in 2007, leading to financial panic and the Great Recession. From 2008 to 2019, the federal government extracted hundreds of billions in fines from dozens of corporations, but few individual business executives were held accountable, and no senior banker was convicted of a crime. I use the trial court record of five government enforcement cases against individuals to explain this apparently anomalous result. I conclude that, in addition to a lack of funding, the prosecution effort was hindered by the government’s erroneous selection of cases to pursue. Further, the diffused nature of decision making in the mortgage finance market made it difficult to prove that any one senior-level participant had the criminal intent necessary for a conviction or a Securities and Exchange Commission civil fine or injunction. The trial results also support the argument that the growth and consolidation of investment banks from 1990 to 2008 created incentives for misconduct within the firms.

COVID-19 AND STOCK RETURNS: EVIDENCE FROM MALAYSIA

The severe acute respiratory syndrome (SARS) coronavirus or Covid-19 has affected the world unprecedentedly. Malaysia is not exempted from its impact. The Malaysian government announced a nationwide lockdown in the middle of March 2020. The magnitude of the outbreak had caused panic to the public and financial panic in the stock market. This study examined the impact of Covid-19 cases and the action taken by the government through movement control orders (MCOs) and economic stimulus packages in the stock market. Event study methodology was used to assess the impact of Covid-19 on stock returns in Bursa Malaysia. Consistent with the efficient market hypothesis, the study found that during the early stages of the MCOs, the cumulative average abnormal returns (CAAR) reflected significant negative returns. However, it showed positive returns after MCO 3 and MCO 4. The results implied that the market perceived that the pandemic was under control. The study also revealed a significant relationship between CAAR and the number of cases announced, supporting the notion that in a less to a moderately free country such as Malaysia, investors showed a certain lack of trust in the number of cases reported by the authorities, and thus overreacted to the number of reported cases. The stimulus packages that were expected to stabilise the economy and society were found to be positively significant during the early stages of the MCOs.

Networks and financial war: the brothers Warburg in the first age of globalization

This article examines the geo-economic consequences of the financial panic of October 1907. The vulnerability of the United States, but also of Germany, contrasted with the absence of a crisis in Great Britain. The experience showed the fast-growing industrial powers the desirability of mobilizing financial power, and the article examines the contributions of two influential brothers, Max and Paul Warburg, on different sides of the Atlantic. The discussion led to the establishment of a central bank in the United States and institutional improvements in German central banking: in both cases security as well as economic considerations played a substantial role.

6. 1865 and after the war

“1865 and after the war” begins with the Confederacy taking desperate measures to try and reverse its fortunes. In March, Lincoln delivered his second inaugural and in April, Robert E. Lee and Ulysses S. Grant met at Appomattox to agree to the terms of surrender. Less than a week later, Lincoln was assassinated. In the aftermath, President Johnson battled with Congress over the terms of reconstruction. New amendments and educational initiatives helped freedmen, but their fortunes were mixed as Southern Democrats and former slave owners regained political power. In the 1870s, financial panic seized America, shifting the focus away from the South and bringing a close to the era of war and reconstruction.

Clearinghouse Certificates during the Great Depression: A Non-Example of "Unaccounted Money"

This article examines the non-issue of bank clearinghouse certificates during the Great Depression of the 1930s. Instead of a market failure, this non-issue is found to have been the result of an intervention. At the time, the issue of clearinghouse certificates to temporarily meet the need of the economy for a medium of exchange following a financial panic was a well-established practice. To make a long story short: In 1933, plans were underway by bankers to resort to this expedient. Merchants and the public at large were anxious to get their hands on the money substitute. But federal authorities said no. Instead of a short-term fix, following which the economy would return to its former ways, federal authorities had other plans. This paper examines both the specifics of the issue of emergency money during the Great Depression and the general principles involved in such issues.

THEORY AND HISTORY OF FINANCIAL CRISES: EXPLAINING THE PANIC OF 1873

This article demonstrates the value of a joint application of the theory and history of financial crises of 1873. It weaves together concepts of financial and banking panic theory with a narrative explanation of the causes and triggers of the Panic of 1873. Basic concepts of economic theory, it suggests, can act as both a framework and a starting point to the historical interpretation of a financial panic.Employing such theory, however, ultimately reinforces the need for contextual cultural explanations of financial panics. A theoretically grounded view of the cultural history of capitalism—and its sudden crises—can help explain why and how some structures of exchange systematized and conditioned human confidence within specific historical contexts.Drawing together theoretical models of banking panic and historical evidence, this article thus emphasizes the importance of Gilded Age money-making culture for understanding the impact of Philadelphia financier Jay Cooke upon the causes of the Panic of 1873. Cooke's sudden and unexpected bankruptcy caused the deconstruction of confidence on the stock exchange and throughout the country. The cultural idiosyncrasy of Cooke's outstanding position in all matters of American finance multiplied the asymmetry that occurred in the wake of a major information shock.